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HomeCANADACanada's Economy Grew 0.2% In May, Statcan Projects 2.2% Annualized Growth For...

Canada’s Economy Grew 0.2% In May, Statcan Projects 2.2% Annualized Growth For Q2

July 31: The Canadian economy experienced faster-than-expected growth in the second quarter, but it is unlikely to deter the Bank of Canada from a third consecutive rate cut in September.

Statistics Canada announced that the GDP grew by 0.2% in May and a preliminary 0.1% in June. This sets the economy on a path for an annualized growth rate of 2.2% in the second quarter, surpassing the Bank of Canada’s recent estimate.

However, BMO Chief Economist Douglas Porter noted the mixed picture this data presents, describing the economy as “paddling fast just to keep its head above water” but still moving forward. He emphasized the importance of upcoming inflation and employment data before the next interest rate announcement on September 4.

CIBC Chief Economist Avery Shenfeld likened the data to a non-medal-winning performance at the Paris Olympics, given the strong population growth. He suggested that the Bank of Canada’s 2.8% growth projection for the third quarter might be too optimistic and predicted another rate cut in September.

RBC Economist Abbey Xu also supported the likelihood of a rate cut, citing the economic backdrop as favorable for another reduction in September.

The Bank of Canada, which recently lowered its key overnight lending rate to 4.5% from 4.75%, has hinted at further cuts if inflation continues to fall and economic growth stalls. This follows a series of ten rate hikes since March 2022 to combat inflation, raising rates from 0.5% to 5%.

Now, with the economy slowing and inflation declining, the bank is shifting to stimulate growth through rate cuts. However, Scotiabank Economist Derek Holt warned against more cuts, suggesting they might undo progress on inflation. He maintained a positive outlook on the economy and cautioned that premature easing could reignite inflation risks.

As the Bank of Canada navigates these economic conditions, the upcoming data on inflation and employment will be critical in shaping its next steps.

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